We are maintaining our Neutral recommendation on
Northern Trust Corporation
) based on the company's focus on initiating more new business with
addition of both personal and institutional clients and assets.
Moreover, the completion of acquisitions in 2011 provided Northern
Trust with attractive clients coupled with new competencies that
will drive future new business.
In July 2011, Northern Trust completed the acquisition of Omnium
LLC, a leading hedge fund administrator, from Citadel. The
acquisition of Omnium, which has around $70 billion in assets under
administration, enhanced Northern Trust's capabilities and created
an industry-leading hedge fund administration platform for
Previously, in June 2011, Northern Trust completed the
acquisition of Bank of Ireland Securities Services (BoISS) from
Bank of Ireland Group for €60 million ($82 million), announced in
February 2011. Through this acquisition, Northern Trust combined
the fund administration business with the existing activities in
Ireland thereby providing outstanding consumer service and
solutions to clients. The acquisition will improve and expand
Northern Trust's Global Fund Service capabilities, particularly in
the fund administration and ETFs. Both the acquisitions added $33.0
million in revenue in the third quarter of 2011.
Moreover, Northern Trust announced the expansion of its services
in Australia in May. The company incorporated Unit Registry
solutions to improve its fund administration capabilities in
Australia. Northern Trust signed an agreement with Computershare to
provide such services combining local expertise with a wide range
of worldwide capabilities.
For supporting the new investment activities, management is
taking steps to tackle expense growth and reinstate operating
leverage to the business over the upcoming quarters and in 2012.
Though, no specific guidance of cost management initiatives to
control expenses was provided, the same is expected in early
In October 2011, Northern Trust reported third-quarter 2011
earnings of 71 cents per share, exceeding the Zacks Consensus
Estimate by a penny. The increase was marked by higher net interest
income and improved client network.
On the flip side, low short-term interest rates along with
persistent narrow spreads at the short end of the yield curve
continue to affect net interest income and money market mutual fund
fees adversely. Therefore, net interest margin was stable but
remained under pressure in the third quarter of 2011, and money
market fee waivers were higher in the third quarter compared to the
prior quarter. It is anticipated that NIM will remain under
pressure in the upcoming quarters as Fed Funds target rate will
likely rise in the beginning of 2013.
Moreover, credit quality is still a concern for Northern Trust
at this point, though an improvement in the trend of metrics was
recorded in the third quarter of 2011. Commercial and industrial
loans improved but continued deterioration in real estate lending
was recorded. Provision for credit losses, nonperforming assets and
nonperforming loans decreased, as expected. However, weakness is
still reflected in commercial real estate and residential real
estate loans in certain markets.
The recent acquisitions depict the company's strong financial
position. Further, we expect increased asset management and
servicing fees on the back of equity markets improvement and higher
volumes. However, numerous regulatory changes might thereby act as
deterrents to the company's fundamentals.
Northern Trust currently retains a Zacks #3 Rank, which
translates into a short-term 'Hold' rating. One of Northern Trust's
Huntington Bancshares Inc.
) also retains a Zacks #3 Rank.
HUNTINGTON BANC (
): Free Stock Analysis Report
NORTHERN TRUST (
): Free Stock Analysis Report
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